Our scheme of amalgamation says it takes effect from an earlier transfer date, but the court sanctioned it two years later. Which date does the Income-tax Department have to accept?
The transfer date in the scheme. The Supreme Court held that every scheme of amalgamation must specify a date from which the amalgamation takes effect, and where the company court sanctions the scheme without prescribing a different date, that specified transfer date is the date of amalgamation. It is not the date of the sanction order, the date the certified copies are filed with the Registrar, or the date shares are allotted. The transferor company's business from the transfer date is deemed carried on for the transferee. The notices calling on the amalgamated subsidiary to file returns for later years were therefore not warranted in law.
Decided by the Supreme Court (Supreme Court of India - B.P. Jeevan Reddy and Suhas C. Sen JJ; judgment delivered by Jeevan Reddy J) on 1996-11-27, reported as (1997) 223 ITR 809; 1997 (2) SCC 302; AIR 1997 SC 1763; (1996) 89 Taxman 619; (1997) 88 Comp Cas 528; 1996 AIR SCW 990. It bears on section 139(2), section 142(1) of the Income Tax Act 1961, in Assessment & Scrutiny matters.
This is the case practitioners cite when the Assessing Officer insists on assessing a transferor company for years falling between the appointed date and the date of the High Court's sanction. It resolved a conflict between the Madras view and the Bombay view in favour of the appointed date, and it explains why the delay inherent in sections 391 to 394 proceedings cannot be allowed to defeat the scheme's own commercial starting point. The Court also told the Revenue what to do instead: assess the transferee on the combined income, and if it wants cover, make protective assessments on both companies. The tax-avoidance objection is left open to be raised in separate proceedings, not used to displace the appointed date.
Binding on every court and authority in India.
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The subsidiary, Marshall Sons and Company (Manufacturing) Limited, was to amalgamate with its holding company, Marshall Sons and Company (India) Limited. In February 1983 the Income Tax Officer had allowed the subsidiary to change its accounting year, so that the eighteen months from 1 January 1982 to 30 June 1983 would be assessed in assessment year 1984-85. The scheme of amalgamation defined the transfer date as 1 January 1982 and provided that from that date the transferor would be deemed to carry on business for and on behalf of the transferee. The Madras High Court sanctioned the scheme in November 1983 and the Calcutta High Court in January 1984; certified copies were filed with the Registrars in January and February 1984, and the subsidiary's name was struck off in January 1986. In November 1984 the Income Tax Officer issued a notice under section 139(2) requiring the subsidiary to file returns for assessment years 1984-85 and 1985-86, followed by a notice under section 142(1). The company's writ petitions were dismissed by the Madras High Court.
The appeals were allowed and the writ petitions were deemed allowed, with no costs. The date of amalgamation was 1 January 1982, the transfer date fixed by the scheme, and the notices issued by the Income Tax Officer were not warranted in law. The Court held that a court sanctioning a scheme may prescribe its own date of amalgamation, and if it does that date governs; but where it merely sanctions the scheme as presented, the date specified in the scheme is the date of amalgamation. The subsequent events - the sanction orders, the filing of certified copies with the Registrars, the allotment of shares - do not displace it. The business carried on by the transferor after the transfer date is deemed to have been carried on for and on behalf of the transferee. The Court expressly declined to decide the Revenue's plea that the amalgamation was a device to evade tax, leaving it to be raised in separate proceedings under the Act.
The Court reasoned from the working of sections 391 to 394A of the Companies Act. A scheme has to be framed, and to contain a date of amalgamation, before any application is made to the court. The proceedings that follow - meetings, individual and newspaper notices, the three-fourths majority, notice to the Central Government, the sanction, and the filing of the order with the Registrar - are bound to take time. During that period both companies necessarily continue in business, and schemes normally provide for it, as this one did in clause 6(b). If the date of the sanction order were treated as the date of amalgamation, the scheme's own commercial arrangement would be defeated by the length of the court process. Since the court retains the power to fix a different date and did not exercise it here, the transfer date stated in the scheme must stand. The Court found the same principle in the Privy Council's decision in Raghubar Dayal v Bank of Upper India. The High Court's reasons - that the transfer date was artificial because amalgamation was not contemplated in January 1982, and that the subsidiary remained on the register of companies until 1986 - did not answer this. The Court also rejected the Revenue's practical objection, pointing out that an assessment can be made on the transferee taking in both companies' income, with protective assessments on each if desired, and on best judgment if balance sheets are unavailable.
In such a situation, it would not be reasonable to say that the scheme of amalgamation takes effect on and from the date of the order sanctioning the scheme.
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Handle my notice → Ask a CA on WhatsAppThe transfer date in the scheme. The Supreme Court held that every scheme of amalgamation must specify a date from which the amalgamation takes effect, and where the company court sanctions the scheme without prescribing a different date, that specified transfer date is the date of amalgamation. It is not the date of the sanction order, the date the certified copies are filed with the Registrar, or the date shares are allotted. The transferor company's business from the transfer date is deemed carried on for the transferee. The notices calling on the amalgamated subsidiary to file returns for later years were therefore not warranted in law. This was decided by the Supreme Court (Supreme Court of India - B.P. Jeevan Reddy and Suhas C. Sen JJ; judgment delivered by Jeevan Reddy J) and bears on section 139(2), section 142(1) of the Income Tax Act 1961. It is reported as (1997) 223 ITR 809; 1997 (2) SCC 302; AIR 1997 SC 1763; (1996) 89 Taxman 619; (1997) 88 Comp Cas 528; 1996 AIR SCW 990. This is the case practitioners cite when the Assessing Officer insists on assessing a transferor company for years falling between the appointed date and the date of the High Court's sanction. It resolved a conflict between the Madras view and the Bombay view in favour of the appointed date, and it explains why the delay inherent in sections 391 to 394 proceedings cannot be allowed to defeat the scheme's own commercial starting point. The Court also told the Revenue what to do instead: assess the transferee on the combined income, and if it wants cover, make protective assessments on both companies. The tax-avoidance objection is left open to be raised in separate proceedings, not used to displace the appointed date. If it applies to you, the first step is this: Point the Assessing Officer to the appointed or transfer date in the sanctioned scheme, and show that the court's order prescribed no different date.
The subsidiary, Marshall Sons and Company (Manufacturing) Limited, was to amalgamate with its holding company, Marshall Sons and Company (India) Limited. In February 1983 the Income Tax Officer had allowed the subsidiary to change its accounting year, so that the eighteen months from 1 January 1982 to 30 June 1983 would be assessed in assessment year 1984-85. The scheme of amalgamation defined the transfer date as 1 January 1982 and provided that from that date the transferor would be deemed to carry on business for and on behalf of the transferee. The Madras High Court sanctioned the scheme in November 1983 and the Calcutta High Court in January 1984; certified copies were filed with the Registrars in January and February 1984, and the subsidiary's name was struck off in January 1986. In November 1984 the Income Tax Officer issued a notice under section 139(2) requiring the subsidiary to file returns for assessment years 1984-85 and 1985-86, followed by a notice under section 142(1). The company's writ petitions were dismissed by the Madras High Court. The matter was decided on 1996-11-27 by the Supreme Court (Supreme Court of India - B.P. Jeevan Reddy and Suhas C. Sen JJ; judgment delivered by Jeevan Reddy J). On those facts the Supreme Court held as follows. The appeals were allowed and the writ petitions were deemed allowed, with no costs. The date of amalgamation was 1 January 1982, the transfer date fixed by the scheme, and the notices issued by the Income Tax Officer were not warranted in law. The Court held that a court sanctioning a scheme may prescribe its own date of amalgamation, and if it does that date governs; but where it merely sanctions the scheme as presented, the date specified in the scheme is the date of amalgamation. The subsequent events - the sanction orders, the filing of certified copies with the Registrars, the allotment of shares - do not displace it. The business carried on by the transferor after the transfer date is deemed to have been carried on for and on behalf of the transferee. The Court expressly declined to decide the Revenue's plea that the amalgamation was a device to evade tax, leaving it to be raised in separate proceedings under the Act.
The Court reasoned from the working of sections 391 to 394A of the Companies Act. A scheme has to be framed, and to contain a date of amalgamation, before any application is made to the court. The proceedings that follow - meetings, individual and newspaper notices, the three-fourths majority, notice to the Central Government, the sanction, and the filing of the order with the Registrar - are bound to take time. During that period both companies necessarily continue in business, and schemes normally provide for it, as this one did in clause 6(b). If the date of the sanction order were treated as the date of amalgamation, the scheme's own commercial arrangement would be defeated by the length of the court process. Since the court retains the power to fix a different date and did not exercise it here, the transfer date stated in the scheme must stand. The Court found the same principle in the Privy Council's decision in Raghubar Dayal v Bank of Upper India. The High Court's reasons - that the transfer date was artificial because amalgamation was not contemplated in January 1982, and that the subsidiary remained on the register of companies until 1986 - did not answer this. The Court also rejected the Revenue's practical objection, pointing out that an assessment can be made on the transferee taking in both companies' income, with protective assessments on each if desired, and on best judgment if balance sheets are unavailable. In the words reproduced by the source cited on this page: "In such a situation, it would not be reasonable to say that the scheme of amalgamation takes effect on and from the date of the order sanctioning the scheme."
It was decided by the Supreme Court on 1996-11-27 and is reported as (1997) 223 ITR 809; 1997 (2) SCC 302; AIR 1997 SC 1763; (1996) 89 Taxman 619; (1997) 88 Comp Cas 528; 1996 AIR SCW 990. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 139(2), section 142(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were allowed and the writ petitions were deemed allowed, with no costs. The date of amalgamation was 1 January 1982, the transfer date fixed by the scheme, and the notices issued by the Income Tax Officer were not warranted in law. The Court held that a court sanctioning a scheme may prescribe its own date of amalgamation, and if it does that date governs; but where it merely sanctions the scheme as presented, the date specified in the scheme is the date of amalgamation. The subsequent events - the sanction orders, the filing of certified copies with the Registrars, the allotment of shares - do not displace it. The business carried on by the transferor after the transfer date is deemed to have been carried on for and on behalf of the transferee. The Court expressly declined to decide the Revenue's plea that the amalgamation was a device to evade tax, leaving it to be raised in separate proceedings under the Act. It arises in Assessment & Scrutiny matters, on section 139(2), section 142(1) of the Income Tax Act 1961, and was decided by Supreme Court of India - B.P. Jeevan Reddy and Suhas C. Sen JJ; judgment delivered by Jeevan Reddy J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. File the transferee's return taking in the transferor's income from the appointed date, and treat the transferor's post-appointed-date business as carried on for the transferee. If the Department presses, ask for protective assessment rather than a substantive assessment on the transferor, which is the course the Court itself suggested. Expect a colourable-device allegation to be raised separately on its own facts; this decision does not answer it.
Validity check could not be completed. Read the judgment in full; later history not checked. The decision resolves the conflict between the Madras view in United India Life Assurance and the Bombay view in Swastik Rubber Products in favour of the latter. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The batch record dates this to 1997; the judgment itself is dated 27 November 1996 and decided_on follows the judgment. The Court expressly left undecided whether the amalgamation was a device to evade tax, and did not reach the appellant's alternative argument on when income accrues. Company law here is the Companies Act 1956; the corresponding provisions are now in the Companies Act 2013 and that change is outside this judgment. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were allowed and the writ petitions were deemed allowed, with no costs. The date of amalgamation was 1 January 1982, the transfer date fixed by the scheme, and the notices issued by the Income Tax Officer were not warranted in law. The Court held that a court sanctioning a scheme may prescribe its own date of amalgamation, and if it does that date governs; but where it merely sanctions the scheme as presented, the date specified in the scheme is the date of amalgamation. The subsequent events - the sanction orders, the filing of certified copies with the Registrars, the allotment of shares - do not displace it. The business carried on by the transferor after the transfer date is deemed to have been carried on for and on behalf of the transferee. The Court expressly declined to decide the Revenue's plea that the amalgamation was a device to evade tax, leaving it to be raised in separate proceedings under the Act.
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